Tech ETF XLK Flatlines as AI Panic Triggers Historic Sector Rotation on Wall Street

February 4, 2026. The tech trade is officially out of gas, and Wall Street’s algos are acting like they just discovered gravity. For years, the Technology Select Sector SPDR Fund, XLK to its friends, has been the default hiding place for every growth-chasing, FOMO-addled portfolio manager from London to LA. But after a decade of relentless outperformance, the sector’s aura of invincibility has cracked. The latest trigger? A full-blown AI panic, with investors stampeding out of software and into anything that looks remotely like a real business.

The numbers are as flat as last night’s beer: XLK closed at $141.96, unchanged on the day, but that masks a storm beneath the surface. Software names got torched, hardware held its ground, and the ETF’s resilience looks less like strength and more like the eye of a hurricane. According to Seeking Alpha, “stock benchmarks diverge strongly” as flows rotate out of tech and into traditional sectors. The rotation is no longer a whisper, it’s a bullhorn.

The selloff in software has become a recurring nightmare. WSJ’s editorial board called it “The AI Stock Market Rout,” blaming a new Anthropic tool for vaporizing valuations across the SaaS universe. Jim Cramer, never one to miss a bandwagon, declared on CNBC that “investors are paying less and less for software earnings these days.” Hardware, meanwhile, is flying, because apparently, you can’t run AI on vibes alone. The result: a market that’s finally pricing in the possibility that AI might not save every business model.

The macro backdrop isn’t helping. With the Fed in chaos after Stephen Miran’s resignation and the Warsh nomination stuck in political purgatory, traders are left to their own devices. The S&P 500 is wobbling, gold is catching a bid, and the only thing moving faster than sector flows is the narrative. The rotation out of tech is no longer just a trade, it’s an existential crisis for the ETF that defined the last bull market.

Historically, XLK has been the ultimate momentum play. From 2016 to 2024, it outperformed the S&P 500 by a staggering +120%, driven by the twin engines of cloud and software. But every party ends. The last time tech underperformed this dramatically was the 2000 dot-com bust, and while this isn’t that, the echoes are getting louder. The difference now is that hardware is holding up, and AI is both the culprit and the supposed savior.

Correlation breakdowns are everywhere. Tech used to move in lockstep with growth, but now it’s decoupling. Value stocks are rallying, energy is stirring, and even the much-maligned commodities complex is showing signs of life. The market is repricing risk, and XLK is caught in the crossfire.

The real story here is that the tech ETF isn’t dead, it’s just being redefined. The days of easy money and infinite multiples are over. Investors are demanding proof, not promises. AI is still the future, but the market is finally asking who gets paid. The rotation isn’t just about flows, it’s about survival.

Strykr Watch

Technically, XLK is teetering on a knife edge. The $142 level is both a psychological and technical battleground, with the 50-day moving average lurking just below at $139.80. RSI is neutral at 51, but momentum is fading. Immediate support sits at $140, with a break below opening the door to $136, the 100-day moving average and a level that’s held since last October. Resistance is stacked at $145, a level that bulls have failed to reclaim in three separate attempts this month. Volume is running +18% above the 30-day average, signaling real conviction behind the rotation.

Options flows are skewed bearish, with put/call ratios at 1.35, levels not seen since the March 2024 tech wobble. Implied volatility is creeping higher, up to 19.2% from a post-holiday low of 13.7%. The market is bracing for a move, and the path of least resistance looks lower unless software finds a floor.

The risk is that a break of $140 triggers a cascade of systematic selling, as quant funds and risk parity strategies rebalance away from tech. On the upside, a snapback rally could materialize if hardware names continue to outperform and AI panic proves overdone. But for now, the ETF is stuck in no man’s land.

The bear case is straightforward: AI disruption is real, multiples are compressing, and the Fed is in no mood to bail out growth stocks. The bull case? Hardware is still printing money, and the market loves a comeback story. But with sector flows this violent, catching the bottom is a dangerous game.

Opportunities exist for traders willing to play the range. Short-term shorts below $140 with tight stops could pay off if the rotation accelerates. Conversely, a bounce off $140 offers a low-risk entry for mean reversion junkies, with $145 as a logical target. Option sellers can take advantage of elevated IV by selling out-of-the-money strangles, betting on a volatility crush once the dust settles.

Strykr Take

This is not your father’s tech ETF. XLK is being remade in real time, and the days of effortless outperformance are over. The rotation is violent, the narratives are shifting, and the only certainty is more volatility. For traders, this is a playground. For investors, it’s a wake-up call. The ETF isn’t broken, but the game has changed. Adapt or get left behind.